WORLD MARKETS WEEKLY REVIEW

World Markets Weekly Review 16-20/08/2021

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World markets were pressured during the week by concerns about geopolitical issues (the ongoing situation in Afghanistan), slowing global growth and the outlook for monetary policy following the release of the minutes of the latest U.S. Federal Reserve meeting. The risk-off mood was driven by signals from Fed policymakers that the current level of extraordinary stimulus may soon be gone.

As central banks get ready to reduce support measures, expectations about the outlook for the global economy are now at their lowest since April 2020, according to a Bank of America survey conducted each month of fund managers’ views. Summertime, and investing’s not easy. All eyes will be on the Aug. 26-28 Jackson Hole symposium, which may offer clues on the U.S. central bank’s timeline for tapering stimulus. The topic of this year’s event is “Macroeconomic Policy in an Uneven Economy.”  Is the storm approaching?


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AMERICAS

CANADA
After four consecutive losses (Monday to Thursday), the S&P/TSX Composite closed up 0.61% on Friday (Aug.21) but still returned -0.87% for the week. Possible changes by the Central Bank prompted a market selloff and Canada’s inflation rate jumped to 3.7% in July,  from 3.1% in June and compared to market forecasts of 3.4% It was the highest inflation rate the country has seen since May of 2011.The data comes against the backdrop of expectations that Canada’s central bank will start hiking interest rates before the U.S. Federal Reserve.

U.S.
Stocks closed the week in red with the major averages falling to their lowest levels in almost a month  amid fears of the Federal Reserve reducing its monthly asset purchases later this year. The pace of its Treasury and mortgage bond buying now amounts to $120 billion a month. “No decisions regarding future adjustments to asset purchases were made at this meeting,” the minutes of the central bank’s July 27-28 meeting, released Wednesday (Aug.18) said.

Still, most of the rate-setters at last month’s meeting “noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year.” However, there was some disagreement among Fed officials about the timing of tapering asset purchases and analysts have pointed out that some disappointing economic data has been released since the July meeting.

Retail sales fell 1.1% last month, while housing starts slumped 7%, much more than consensus expectations and  homebuilder sentiment unexpectedly fell to a thirteen-month low. More positively, weekly jobless claims fell to 348,000, a bigger drop than expected and the Leading Index grew for a fifth-straight month.

BOVESPA

LATAM

In Brazil, the Bovespa Index returned -2.59% this week amid weakness in energy and mining companies. Brazilian mining giant Vale could be hit by lower steel production in China, The Rio Times reported on Wednesday (Aug. 18). Investors are also concerned about the country’s economic outlook. The market sees higher inflation and lower GDP growth in Brazil in 2021 according to the Focus Report released by the Central Bank (BC).

However, BC Governor Roberto Campos Neto said on Thursday in a talk hosted by the Americas Society/Council of the Americas that despite recent market volatility, he expects corporate debt issues and initial public offerings (IPOs) to continue to grow in the local market.

Meanwhile, Brazil, the world’s largest producer of sugar cane, with 40% of the global market estimates 9.5% drop in its sugarcane harvest in 2021/2022, according to the second projection of the harvest made by the National Supply Company (Conab).

In Chile, the IPSA retreated 1.24% amid weakness in the price of copper, which is one of the country’s main exports. The country’s gross domestic product surged 18.1% year-on-year in the second quarter, beating market expectations of a 17.4% expansion. It was the fastest pace of expansion of the Chilean economy on record, the central bank reported on Wednesday.  Mining increased by 3.1% from the first quarter.

ASIA/PACIFIC

JAPAN
Japanese equity markets finished the week sharply lower. In Tokyo the Nikkei 225 Index ended near an eight-month low, a day after Toyota Motor, the world’s largest automaker by sales volumes, said it would slash global production for September by 40 percent due to the gobal microchip shortage. The news led to a sell-loff in the shares of automakers and companies producing materials for autos.

Shares in Toyota plunged 4.42% on Thursday (Aug. 19) , their biggest daily drop since December 2018 and closed down 4.09% on Friday (Aug.20). Honda Motor, Mitsubishi Motors and Nissan Motor plummeted 5-7% . Auto parts makers Denso and Aisin Seiki sank 8.8% and 5.3% respectively.

The government’s decision to extend its “state of emergency” lockdown in regions including Tokyo to September 12 as well as adding several other regions, also dampened sentiment and cast doubt on the economic recovery.

On the macro front, Japan’s economy in the April-June period grew a real 0.3% from the previous quarter, or an annualized 1.3%, according to the preliminary data released by the Cabinet Office but the GDP rise was too slow to make up for the January-March quarter’s 3.7%. Fitch Ratings maintained the sovereign ratings of Japan at ‘A’ with a ‘negative’ outlook.

nikkei225

CHINA
Chinese stocks slumped after China’s National People’s Congress officially passed a law designed to protect online user data privacy. Uncertainty about what other sectors the government might target next lingers. As of Friday, stock markets of China and Hong Kong lost more than USD 560 billion in market value, according to Reuters. China’s industrial production and retail sales growth slowed in July, suggesting a slowdown in the economic recovery.

The People’s Bank of China left its benchmark lending rate for corporate and household loans unchanged for a 16th straight month, amid weak economic data. That was in line with expectations of majority of traders and analysts. The central bank also said that lenders extended CNY 1.08 trillion in new yuan loans last month. This was well below June’s CNY 2.12 trillion lending and economists’ forecast of CNY 1.2 trillion.

AUSTRALIA
The ASX saw five straight losses ASX this week, the first time the Australian sharemarket has done so since the early days of the COVID-19 crash. It was also the worst week since January  with about $50 billion being wiped from the benchmark index. A mixed earnings season reaction and the introduction of stricter, longer coronavirus lockdowns dented investors’ sentiment.

Tensions are high as Sydney, Australia’s biggest city with more than 5 million people, has been in a strict lockdown for more than two months. Thousands of protesters defied restrictions and hit the streets of in Sydney and Melbourne, as well as Brisbane on Saturday (Aug.21) and clashed violently with police.

Adding to woes, policymakers of the Reserve Bank of Australia said the economic activity and employment were expected to decline in the September quarter.

EUROPE

EUROZONE
The pan-European STOXX Europe 600 Index returned -1.48% this week, in what was its worst weekly performance since February, according to Reuters data.  Geopolitical tensions following the developments in Afghanistan weighed on sentiment. EU member states are concerned that events in the war-torn country will spill over into Europe and could trigger a repeat of the European migration crisis of 2015/16.

In economic news, Eurozone’s inflation was confirmed at 2.2% year-on-year in July 2021, the highest since October 2018 and above the European Central Bank’s target of 2%. Main upward pressure came from energy food, alcohol & tobacco and services, Eurostat data showed.

In Germany, producer prices grew 10.4% yearly in July, after rising 8.5% in June, Destatis reported. Economists had forecast an increase of 9.2%. This was the fastest rise since January 1975. On a monthly basis producer prices saw a 1.9%. The Netherlands’ exited a recession with strong growth in the second quarter, as the economy expanded by 9.7% year-on-year, underpinned by private consumption and trade, according to preliminary estimates from the statistical office CBS.

ftse100

UK
The FTSE 100 ended the week 1.81% lower as data from the Office for National Statistics showed
government borrowing smashed official forecasts last month. Public sector net debt reached £2.2 trillion at the end of July 2021, representing 98.8% of GDP, the highest ratio since March 1962.
Meanwhile, research from GfK showed consumer confidence dropped one point over the last month to -8 points in August. The research also indicated savings habits adopted amid Covid-induced lockdowns could prove to be stickier than expected. U.K. retail sales for July came in well below economists’ forecasts, feeding into concerns that the economic rebound from the depths of the Covid crisis may be losing steam.

CEE/SEE

In Romania, the BET index returned -0.68% this week as new finance ministry was sworn in and
data showed that the economy expanded 1.8% in the second quarter of 2021, slowing from a downwardly revised 2.5% growth in the first quarter.  Bulgaria’s SOFIX retreated 1.74% amid political turmoil with the Balkan country set for a third election this year. More positively, the economy expanded in the second quarter of the year and exited a recession, according to flash data from the statistical office.  In Cyprus, the main market index closed up 1.33% as the economy grew 12.9% y-o-y in the second quarter of 2021, the most since at least 1996 and recovering from an upwardly revised 2.1% contraction in the prior quarter.

MIDDLE EAST

(Trading days from  from Sunday to Thursday)

In Israel, the TA35 increased 0.8% over the past week, bringing year-to-date cumulative gains to 15.1%.
New Shares Company – the first SPAC (Special Purpose Acquisition Company) on the Tel Aviv Stock Exchange made an initial public offering (IPO) in the shares market this week and raised US$ 124 million. The country’s GDP expanded 15% in the second quarter of 2021 over the same quarter of the previous year.

Saudi Arabia’s benchmark index TASI declined 1.08%. Oil prices, a key catalyst for the Gulf market, fell for a sixth day on Thursday (Aug.19), the longest losing streak since February 2020.

In Egypt, the EGX fell 0.70%. The country plans to take the first steps early next year toward selling a stake in the state company behind its new capital city, in what could be the North African nation’s biggest-ever initial public offering, Bloomberg reported.

AFRICA

In South Africa, the JSE TOP40 sank 5.48%. SA Reserve Bank Governor Lesetja Kganyago on Wednesday (Aug. 18) told the Standing Committee on Finance that social unrest is expected to temporarily interrupt the 2021 GDP growth recovery. Meanwhile riots will likely have an impact on investment, he said as SA’s investment levels are lagging behind emerging market peers like Brazil, Russia, India, China as well as Turkey, Argentina and Chile.

In Nigeria, the NSE All Share Index returned -0.13%. Last week, Hassan Mahmud, Director, Monetary Policy Department of the Central Bank of Nigeria (CBN) said during the Mid-year Economic Review and Outlook 2021, that there were positive sides to the country’s economic growth, despite uncertainties in the domestic and global economy.


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